Do you know how to determine the price for your firm’s services?
Determining the price of your services is crucial for the success of your firm. If you’re able to offer your clients great value and charge them accordingly, you’ll be able to have fewer clients while making an equal or greater profit.
Gusto, along with our partners at CPA Academy, presented an excellent webinar about value pricing titled “Value Pricing: Dividing the Accounting Profession for 25 Years,” and you can watch the full webinar here. The webinar featured the tax and value pricing expertise of Greg Kyte and Caleb Newquist, and they’ll teach you all about value pricing strategies and examples.
In addition to this article, Part Two, you can also check out Part One of the webinar series, which will inform you all about the fundamentals of establishing your firm’s prices.
In this part, you will learn the basics of value pricing from Comedy CPE Founder Greg Kyte and Gusto’s Editor-at-Large Caleb Newquist. By the end of this article, you’ll be well-versed in determining your value price, comparing your services to the next best alternative, the importance of offering clients different options, communicating with new and legacy clients about your price, and why you should drop some clients.
Value price based on the best alternative
Determining the value price of your services is crucial for your firm. Your value price is the maximum that a client is willing to pay for your services. If you undercharge your clients, you’re not getting the optimum revenue out of your services, but you’ll have difficulty retaining and gaining valuable clients if you overcharge. Greg cited pricing strategist Rafi Mohammad’s method of finding a basis for your value price:
“[Rafi Mohammed’s] definition of a value price is you figure out … the next best alternative to your services. … That’s kind of your anchor price. … If I’m better than that alternative, I should charge more. How much more? That’s more of an art form. But you at least have to figure out an anchor price that’s out there that my customers can find and that my customers can access. Am I worth more than that or am I worth less than that?”– Greg Kyte
What’s the next best alternative to your services, and what do they charge? One common alternative to using an accounting firm is using tax return preparation firms like H&R Block or a technology like TurboTax.:
“What you’re doing by helping people as a human being is better than what a robot online is doing with someone doing it themselves. That should be a minimum price that you should be above for every single person that you’re working with. … Are your prices higher than H&R Block?”– Greg Kyte
Greg and Caleb polled the audience to see who charged less than H&R Block, and they found that 54% of the audience offered their services at a lower price. Accounting firms staffed with CPAs could conceivably charge significantly more than corporate tax preparation firms. If you believe your firm’s services are worth more than the alternative, and your prices should reflect this.
Many accountants fear that if they raise their prices, they’ll lose clients. And yes, you might lose a few clients, but you’ll gain more revenue by increasing your price. Your loyal clients will continue using your services after you increase your price because it will be difficult for them to replace your firm:
“There’s a switching cost. … People who come to you for their accounting services, they don’t want to go somewhere else and develop a new relationship with someone else.”– Greg Kyte
Offer clients options and communicate with them
Your firm can gauge its value price and draw in more clients by offering multiple service options. When you provide current clients and potential clients three options, they’re more likely to continue using your firm because it gives them more control over what they’re purchasing.
For example, you could offer clients three different tax service plans that provide different services like audit representation, tax planning, and retirement plan reviews. Clients may initially sign up for your less expensive plan, but they could always upgrade in the future:
“The funny thing is, your client might not say, ‘Gold works perfectly for me.’ But they might come back to you and go, ‘You know what I really need? I need tax return, tax planning, and I need someone to review my retirement plan.’ At that point, you just go, ‘Boom. I just figured out what you value, and now I can price that accordingly.’ This is one way to get through all the difficulty of figuring out what the value is for them—by giving them different options with different levels of service.”– Greg Kyte
When you offer clients different options, you can evaluate what clients want out of your services and how much they’re willing to pay.
Another essential part of pricing is having conversations with your clients. When a new client contacts your firm, find out what made them interested in your firm in the first place:
“The questions are, ‘Why me? Why did you come to me? Why now? Why this timing? You didn’t come last month; you didn’t come last year. Why are you coming now?’ … Then you start figuring out what they want you to do instead of just guessing what they want you to do. … There’s some sort of impetus, something that’s causing them to make the move now. Why is it? ‘I was disappointed with my old accounting firm.’ … You can get tons of information in terms of what they want you to do and what they value from the relationship.”– Greg Kyte
New clients may seek out your business because they’re dissatisfied with their old firm or they need a niche service that your firm offers. You can gauge how much the client is willing to pay through your onboarding conversation and charge them accordingly. You’re not attempting to overcharge your potential client—you’re evaluating the value of your firm’s services based on what they need.
Communication is also crucial when you’re raising your current prices. You can have productive conversations with existing clients about your shifting rates and offer them different options:
“You can say, ‘Hey, here’s the thing we’ve been charging you by the hour. We’re going to charge you a fixed price for this coming year. Based on what we’ve done for you before, here’s where we’ve gotten. … Here’s how we’ve served you in the past. Here’s the flat price for that. Here’s option two, which is a little better. Here’s option three, which is a little better. What do you think about that?”– Greg Kyte
When you have conversations about raising your rates with your clients, you can also determine if they’re unsatisfied with parts of your service. Your client might not be willing to pay more because your firm failed to provide something that they wanted in the past. However, you can easily fix this by finding your firm’s blind spot and addressing your client’s unmet needs.
Bottom line: Offering your clients different options and consciously communicating with them is crucial for determining your value price and improving your firm’s service.
Be willing to drop clients
In addition to establishing your price, it’s also important for your firm to drop some clients:
“The challenge is to identify two clients and to fire them. … Classify your clients as A Clients, B Clients, and C Clients. … The quality of your life is important, [so] you should fire every client that you have that’s not an A Client. That should be the goal. I want to serve the people that I enjoy serving at the level that I enjoy serving them.”– Greg Kyte
Ideally, you should eventually shift into only serving your preferred clients. When you drop clients that you don’t enjoy working with, you can focus on your preferred clients and better suit their needs:
“There [are] at least two clients at your firm that you don’t like their attitude, you don’t like how they come at you. You know who they are. … Redeploy your resources that you save from not serving those clients to help serve the clients who really appreciate you.”– Greg Kyte
Greg Kyte told the story of a friend of his that owns an outsourced bookkeeping company. He dropped half of his clients so that he could better serve his preferred clients:
“He fired half of his clients so he could deliver real value to his best clients. As a result of that, his revenue was flat, [and] his profit increased. … He was able to redeploy his team to serve the people who really wanted his service and wanted more from him.”– Greg Kyte
Even though he dropped half of his clients, he was still able to maintain the same revenue because he began serving the needs of fewer clients and was able to charge them more because of his great service.
Rather than focusing on your quantity of clients, focus on serving your preferred clients’ needs so that you can deliver better value services and increase your value price.
Learn more about value pricing
Pricing is crucial for getting the most revenue out of your services, and Greg’s suggestions to compare yourself to the next best alternative, offer multiple options, communicate with clients, and drop low priority clients are all great ways to begin determining your price and your firm earning more. If you want to learn more about value pricing, watch the full webinar here.
When you join Gusto’s partner program, you’ll gain essential tools for offering better value to your clients, like advisory services and integrated software workflows. You’ll gain access to our People Advisory Certification program so that you can begin advising your preferred clients on people-based services like HR, payroll, and benefits. Gusto’s partner program has so much to offer your firm in optimizing your workflow and helping your clients, and you can learn more about it here.